Yelp Being Sued in San Francisco Courts for Misleading Investors

Gigaom reports that there is a new class action suit against Yelp for security law violations:

The complaint alleges Yelp violated securities law by committing “fraud on the market,” and claims that executive sold stock when the price was near a high of almost $90 in February; the price fell sharply shortly after this in light of the negative publicity surrounding the FTC complaints.

This suit, rather than attacking Yelp’s practices directly are alleging that Yelp made “false and misleading statements about their true business and financial condition” in regards to the “robustness of their algorithms designed to screen reviews” and the Company’s growth prospects and the “extent to which they were reliant upon undisclosed business practices”.

From the filing:

(a) Reviews, including anonymous reviews, appearing on the Company’s website were not all authentic “firsthand” reviews, but instead included fraudulent reviews by reviewers who did not have first-hand experience with the business being reviewed;

(b) Algorithms purportedly designed to screen unreliable reviews did not comprehensively do so, and instead, the Company allowed such unreliable reviews to remain prominent while the Company tried to sell services designed to suppress negative reviews or make them go away; and

(c) In light of the above facts, the representations concerning the Company’s current and future financial condition and prospects, and the extent to which they were reliant upon undisclosed business practices, did not have a reasonable basis.

It will be interesting to see if these new angles of “attack” on Yelp are any more successful than previous suits.

Here is the complete filing for Curry vs Yelp.


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13 thoughts on “Yelp Being Sued in San Francisco Courts for Misleading Investors”

  1. Mike,
    Firstly this not the normal local SEO blog post topic but thank you for documenting it. I have had clients think that they needed to be on Yelp and think they needed to pay them (Yelp) extra for their supposed service of making negative reviews go away. Yelp still comes up a lot in local searches on Google if you type in “window replacement Santa Cruz” Yelp has the first 3 listings before the Pack -7. Why is Yelp still coming up in local searches so much?

  2. Yelp just continues to build a bad name for itself. It’s kind of disappointing and difficult to watch. I wonder at what point do the majority of reviewers begin to get upset.

  3. I have two tiny businesses listes on Yelp; I get regular calls from them trying to explain to me the cash value of the referrals I get from them. Their sales tactics are unethical.

  4. I can say that yelp has never contacted me concerning a service that would help remove negative reviews. But I would like to add that negative reviews can be dealt with directly with the reviewer by using the yelp for business log on page and post your questions to the reviewer. If businesses would make a point of addressing the reviewers concerns or experience with the business it shows that they care and is viewed in a positive way by people that see the reviews. I hear businesses complaining about fake reviews or negative reviews but they never take the time to acknowledge these problems and show consumers that they want to listen, learn and resolve a problem that the reviewer may have experienced. Businesses are not perfect and yelp should be looked at as a great way to make the business better. I do have a problem with the way yelps advertising solutions work and wouldn’t even think of giving them any money. As far as their seo and the reasons why their site comes up above the 7 pack I’m sure many of us probably don’t realize that if we continue to link to our yelp profile pages from our own websites we are giving them some free link juice and it becomes relevant at least to google it does.

  5. @Eric
    This isn’t really about how businesses do or don’t respond to reviews. Each business does so in their own way and by their own set of guidelines. Like you , I think they could often do better.

    This suit is about whether Yelp deceived investors by over promising and under delivering on the value of their review system. Unlike claims by small business which are typically shut down by Section 47, 231, stock holder issues are dealt with differently under different statutes.

  6. I would go so far as to say this is an open-and-shut case. Yelp has been nearly completely marginalized throughout much of the country over the past three years or so as they adopted a business model that is very similar to that of the Better Business Bureau (IMO, an extortion racket) in which positive reviews were all-too-often suppressed regardless of authenticity (I quit using Yelp years ago as their ‘algorithms’ apparently decided I was being paid by every company I reviewed — for the record, I was paid by a total of zero companies I’ve ever reviewed on Yelp), and realized what they were up to.

    To the best of my knowledge they’ve refused to publish all but one favorable review of the company I was associated with at the time I quit using the ‘service’, while allowing every negative one to go through, not that there were many – maybe three over a span of 3 years. It wasn’t hard to figure out though that they were trying to peddle less-than-honest ways of getting a page full of good reviews and/or removal of bad ones. I’ll have nothing to do with a company like that.

    Yelp has never been a determining factor of that company’s customers’ propensity to make a given purchase. I can’t say that what little inbound traffic came from Yelp indicated anything other than a curious competitor every now and again might have viewed the page and clicked through, and perhaps every now and again (like, once every six months or so) a genuine visitor of either a customer or prospective customer might have arrived at our site from Yelp, but the volume was so low that it clearly wasn’t a concern even if it was the lone review site on the web whereby negative reviews were equal-to or greater-than positive (out of maybe 15-18 that I know of).

    I don’t see any way that the allegations in this suit are anything other than accurate, and wouldn’t blink twice if Yelp were to become even further marginalized as a result. In my mind, Yelp’s continuing decline in relevance in all but a handful of major metropolitan markets (maybe it’s different out west, I can’t say for certain) is a good thing.

    1. @Peter
      I fully agree that Yelp’s business model is rife with conflicts of interest. But I don’t fully agree with your other statements. Yelp is irrelevant in many places but amongst hip, youngish urbanite it is a very effective platform. And while the allegations may be accurate, proving so in a court of law may be difficult. The burden of proof in a stock holder suit might be less but it is still not a slam dunk victory for the folks bringing the case. Clearly Yelp has seen this coming and has had plenty of time to get their story and facts in alignmment with the law if not basic decency.

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